The Wealthy are not like us. They are willing to spend money to make money. They are willing to pay their tax team a $1 to save $10 in taxes.
This Wealthy (called the “one percent”) create most of the jobs in the U.S. They pay half of all income taxes. But, at the same time, they usually in a lower tax rate than the rest of us. For example, Democratic Senator Bernie Sanders is in 15% tax bracket on all his income, including his senator salary. The topic of this blog, is what’s wrong with your tax planning?
The Wealthy use long-term tax strategies. These strategies tweak their business structure. Different parts of a business have different tax laws. For example, if you have a sales force, they should be in a different corporation than your business.
Seems like a paradox; they are taxed at a lower rate yet they pay almost half of all income taxes. They also pay 100% of the U.S. death tax the rate is about 45%.
Why do the rich pay fewer taxes?
1. They plan ahead. For example, this October 2016 (as I write this blog) my clients are planning their 2018 taxes and also investments. They hire tax planners. They spend 10 cents to save a dollar in taxes. Their tax team creates the best tax strategy.
2. They do “not follow the pack” comes to tax planning. They use life insurance, Roth IRA’s self-directed IRAs (Mitt Romney is famous for his offshore tax planning with his self-directed IRA), trusts located in Nevada, a business in Puerto Rico (where the tax rate is 4%), The list goes on and on.
Remember taxes are paid with after-tax income.
Unfair but true. If I owe $10,000 of tax and if I am in a 45% marginal tax bracket, I must make $19,000.
Then I pay $9,000 in tax (45% of $19,000). With my remaining $11,000, I can pay my tax of $10,000. I get to keep a $1,000.
How can you pay less in taxes?
I hope the above helps. If you have your own business, look at the character of your income. Some income may be taxable at a lower rate. For example, self-employment income has an extra tax at 15%. If you are involved in the internet or e-commerce, then please check out my book for international tax planning opportunity.
If you are interested in exploring innovative small business tax plans, then I invite you to email me, Brian Dooley, CPA, at [email protected]